Trading gains: terms‐of‐trade and real‐exchange‐rate effects

Ulrich Kohli

Review of Income and Wealth, 2023, vol. 69, issue 4, 975-998

Abstract: This paper considers alternative measures of a country's trading gains, i.e., the extra income that it earns (or loses) as the result of changes in the relative prices relevant for international trade, and which makes up the difference between real gross domestic product (GDP) and real gross domestic income (GDI). Looking at both the Laspeyres and the Törnqvist aggregation, we show that the trading gains really consist of two components, a terms‐of‐trade effect and a real‐exchange‐rate effect. Nearly all national statistical agencies, receiving no firm guidance from international organizations in this matter, merely consider the first effect, which suggests that the so‐called trading‐gain estimates they publish are incomplete and misnamed. Even more seriously, it implies that the corresponding measures of real GDI they derive are conceptually flawed. A straightforward way to circumvent these difficulties is to use the gross domestic final expenditure price index as deflator when computing real GDI and the trading gains. Some numerical estimates for Australia are provided as an illustration. The paper also identifies the underlying linear and Translog real GDI functions for which the Laspeyres and Törnqvist terms‐of‐trade and real‐exchange‐rate effects are exact.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/roiw.12615

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:revinw:v:69:y:2023:i:4:p:975-998

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0034-6586

Access Statistics for this article

Review of Income and Wealth is currently edited by Conchita D'Ambrosio and Robert J. Hill

More articles in Review of Income and Wealth from International Association for Research in Income and Wealth Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().